Transforming Malaysia into a Regional Deepwater Hub

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Despite pressures from the low oil-price environment, the national oil and gas industry is on course to fulfil its goal of becoming a hub for deepwater development in the region.

Untapped potential

Malaysia has among the largest oil reserves in Southeast Asia and produced 32.4 million tonnes of oil equivalent in 2015, according to the Organisation for Economic Co-operation and Development. This represents the second highest rate of crude oil production in the region (see fig. 1).

Despite this secure footing, the country’s oil and gas industry has not been immune from the impact of the 2014 global downturn in oil prices. For example, national oil company PETRONAS experienced a 17 per cent revenue drop between 2015 and 2016 and players from across the wider sector are having to adjust to the new reality.

Nevertheless, the oil and gas sector has been weathering the low oil-price environment, in part due to its well-established industry ecosystem. As a result, industry players remain well positioned to exploit Malaysia’s wealth of untapped resources, from marginal fields to complex offshore developments, including the country’s deepwater reserves.

Indeed, PwC highlighted the potential of the deepwater segment in 2016 by naming it as one part of Malaysia’s three-pronged approach to unlocking national oil reserves, alongside monetising marginal fields and intensifying enhanced oil recovery.

This potential reflects PETRONAS’ long-standing goal to transform the country into a regional deepwater and subsea hub. In turn, this goal is based on the existence of up to seven billion barrels of oil equivalent of untapped resources lying in deepwater reserves in Malaysia.

If global industry challenges regarding both cost cutting measures and moves to reduce oil supply can be adequately managed, the promise of deepwater project development in Malaysia is substantial.

A maturing deepwater ecosystem

There are currently four deepwater projects producing oil in Malaysia, including Kikeh, Siakap North-Petai and Gumusut-Kakap. The fourth and most recent deep-sea development is the Malikai project, which came on-stream in December 2016 and is expected to reach a production peak of 60,000 barrels per day.

The Malikai oil field is located in the South China Sea, approximately 100 kilometres off the coast of Sabah, and lies at a water depth of 500 metres. The project is operated by Royal Dutch Shell, which holds a 35 per cent stake, and its partner companies are ConocoPhillips Sabah and Petronas Carigali, which have a 35 per cent and 30 per cent interest, respectively.

In addition to Malikai, Shell also operates the Gumusut-Kakap deepwater platform, in a joint venture with ConocoPhillips Sabah, PETRONAS Carigali and Murphy Sabah Oil. This platform, which operates at a depth of 1,200 metres, has an annual peak oil production of 148,000 barrels a day and can contribute up to 25 per cent of Malaysia’s oil output.

In addition to Shell, Murphy Oil Corporation is the other prominent operator in the deepwater segment, operating the two deepwater projects of Kikeh, which came on stream in 2007, and Siakap North-Petai, which began producing in 2014. These two projects have seen peak production rates of up to 128,000 and 35,000 barrels per day, respectively, since coming on-stream.

Malikai: the first of its kind

Drilling on the Malikai project is being conducted from aboard a 27,500-metric tonne tension leg platform (TLP) which floats on the surface while moored securely to the seabed. The TLP consists of a separate tender-assisted drilling (TAD) unit that works to keep costs down by avoiding the need for a larger platform. According to Shell, this is the first offshore project in the world to couple a TLP with TAD.

The Malikai project produces and pipes oil to the shallow-water Kebabangan platform for processing, which is located 50 kilometres away. The Malikai platform also produces a small amount of natural gas that is used to help power the TLP. This gas is also pumped into the production tubing to help oil flow from the reservoir, in a process known as ‘gas lift’. Any extra gas produced is being transported via the Kebabangan platform.

Malikai is noteworthy in the local context for a number of reasons. First, a large majority of staff involved during project development were Malaysian, as too are most of the 90 operational employees now on board the TLP. According to Iain Lo, Chairman of Shell Malaysia, this local staff base proves national capability throughout the project lifecycle and demonstrates the maturity of the country’s deepwater ecosystem.

Second, Shell affirms that the Malikai TLP is the first to be fabricated and installed in Malaysia, as well as the first such platform in the world outside the Gulf of Mexico.

Deep commitment

Despite the low oil-price environment, prominent players including Shell and its partner companies in the Malikai project remain firmly committed to deepwater development in Malaysia.

In fact, Shell has strengthened its focus on deepwater projects since the final decision to invest in Malikai was taken in 2013. In June 2016, for example, Shell CEO Ben van Beurden stated that although the company would cut capital expenditure in the short term, it would nevertheless prioritise deepwater production, with its global output in the segment forecast to double between 2016 and 2020.

Moving forward, Shell will continue to embark on an active exploration programme in Malaysia. In fact, it already has one of the largest exploration expenditures in the country: approximately US$100 million per year in recent years.

Continued commitment from the companies such as PETRONAS, Shell, Murphy Oil and others is helping to strengthen local expertise in the Malaysian deepwater segment. In turn, this is helping the country to maximise the exploitation of its offshore resources and reinforce its ambition to become a regional hub for deepwater development.